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I’ve lost several hundred thousand US dollars due to negligent investment advice, though the adviser denies being at fault. The firm is based overseas – what can I do?
Many wealthy investors rely on overseas advisers, but losses suffered in the recent financial turmoil have focused minds on the quality of advice received, particularly if it might have understated the risks involved – for example in structured products linked to stock market indices.
Almost all legal systems have a concept of negligence – “delict” – or minimum contractual duties, which would make a financial adviser potentially liable if the quality of his or her advice fell below that to be reasonably expected, causing loss to a client. Your adviser is also very likely to be subject to local financial regulation and supervision that might include compensation schemes. But where these options are not available locally, or have proved unsatisfactory, your only option might be to sue.
So where should I sue?
Do not assume you have to sue in the courts of the country where the adviser is domiciled: there is often a choice, including the courts where you are domiciled or the courts of some other country. Exercising that choice is often known as “forum shopping” – with New York regarded as the world’s “negligence capital” thanks to its reputation for high payouts and lawyers who will work on a contingency basis (taking a percentage of winnings).
In what circumstances do I have a choice of where to sue?
Every court has its own laws about its jurisdiction. An EU regime, which also extends to some non-EU states, provides the circumstances in which courts have jurisdiction, and that often provides a choice. While the general rule is that you can sue where the defendant is domiciled, there might also be the option of proceeding in the place of the relevant branch or agency involved, or where the service was provided.
There is also a European “first come, first served” rule, which means once one party starts proceedings in one of the possible courts, proceedings cannot be brought elsewhere unless and until the first court rejects jurisdiction. So, where both parties know they are heading to court, there is an incentive for each to be the first to make the choice.
The contract with the adviser has many small-print terms and conditions. They specify the court that will have jurisdiction in the event of dispute. Does that mean I have no choice?
The courts will generally respect such “jurisdiction agreements”, which prevent you from suing elsewhere, but this might not be binding in your case. There may be technical arguments that the terms and conditions were not incorporated into the contract or that insufficient effort was made to ensure you were aware of them.
Also, “consumers” can often avoid the unfair and onerous effects of terms and conditions. It is generally regarded as unfair for such individuals to have to bring proceedings overseas, and therefore their local court usually has jurisdiction. In Standard Bank London v Apostolakis (2001), for example, the bank tried unsuccessfully to enforce an English jurisdiction agreement against a couple in Greece who had been trading substantial “forward purchases of foreign exchange in precious metal trading”.
The contract says it is governed by overseas law…
The “choice-of-law clause” can be a factor but mostly has no bearing on the choice of court. A court can apply foreign laws, although it might need expert evidence.
If I have a choice, what factors should I take into account?
It is important that any judgment obtained in one court is “recognised” by the courts of the place where you might want to enforce the judgment – which will be where the defendant has any assets.
Timescale may be important, as some courts – in Italy and Germany, for example – are notoriously slow. There have been cases of potential defendants issuing their own proceedings in Italy purely to cause delay.
The cost of proceedings is always of greatest concern, and that usually means the cost of the lawyers. In London, the hourly rate still predominates, which can get very expensive. Continental lawyers tend to have lower hourly rates, but often charge fees under a tariff linked to the value of a claim, which can prove costlier. US lawyers have moderate rates but a reputation for recording substantial amounts of time.
Increasingly, “litigation funding” and its availability is a key factor in deciding where to sue. Funding may take many forms. It could be risk sharing by the lawyers, acting on a conditional basis (less or no fees if you lose, but higher fees if you win) or contingency basis (taking a percentage of the winnings). This is most well-known in the US, but English lawyers increasingly offer conditional agreements.
In the UK, there has also been a growth in “after the event” legal costs insurance, which allows a claimant to insure against the risk of having to pay the other side’s costs if the case is lost, and of not being able to recover his or her own costs.
The quality of courts and local lawyers is also important. There are courts, even within the EU, that have the reputation of being corruptible, and most developing-world courts are best avoided. Local lawyers need to be of high standard, independent and willing to act. I was, for example, once unable to find any lawyer in an Asian city to act against a well-known local businessman.
It is also worth considering where the defendant would not want to be sued, or where would be the most inconvenient, as that should make him or her more inclined to settle the dispute.
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